ProKidney Corp. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. ProKidney is a clinical-stage biotechnology company developing REACT, an autologous cell therapy for chronic kidney disease. It has no approved products and has generated no product revenue.
Financial and operating results
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Research and development expense | $32.2m | $21.1m | $84.2m | $61.2m |
| General and administrative expense | $14.4m | $14.4m | $43.1m | $61.6m |
| Total operating expense / operating loss | $46.6m | $35.6m | $127.3m | $122.8m |
| Consolidated net loss | $42.0m | $33.9m | $113.7m | $123.6m |
| Net loss attributable to Class A shareholders | $11.0m | $11.9m | $29.8m | $101.5m |
Amounts are in U.S. dollars; financial statement figures are rounded. There are no meaningful revenue margins because the company has no product sales. Class A shareholder loss is affected by the allocation of results to PKLP’s noncontrolling owners; the 2022 comparison also spans the July 2022 business combination and is not directly comparable.
- Cash and liquidity: At September 30, cash and cash equivalents were $191.4m and marketable securities were $204.9m, for $396.3m combined. Management said these resources were expected to fund operating expenses and capital expenditures through 2024, based on assumptions that may prove inaccurate.
- Cash flow: Operating cash outflow was $64.7m for the first nine months, versus $61.3m a year earlier. Investing outflow was $234.1m, primarily reflecting purchases of marketable securities and the Greensboro facility. Financing outflow was negligible.
- Balance sheet: Total assets were $451.8m; total liabilities were $23.6m, including $2.8m of lease liabilities. The company reported $1.52bn of redeemable noncontrolling interest and a $1.09bn shareholders’ deficit; these reflect the Up-C structure and should not be read as conventional funded debt.
- Interest income: $5.5m in Q3 and $16.8m for the nine months, up from $1.6m in each 2022 comparison period, helping reduce consolidated net loss relative to operating loss.
Material changes and notable items
- Q3 R&D expense increased $11.1m year over year, principally from clinical program spending, employee compensation and equity awards, and manufacturing improvements. Nine-month R&D rose $23.0m.
- Nine-month G&A fell $18.5m, mainly because 2022 included higher equity-based compensation associated with PKLP unit sales. Q3 G&A was broadly unchanged.
- Equity-based compensation was $37.2m for the first nine months, compared with $65.5m in 2022. A modification of certain departing personnel’s options added $3.0m of compensation expense in 2023.
- Fixed assets rose to $42.6m from $10.7m, reflecting facility and equipment investment. The company completed the purchase of a 210,000-square-foot Greensboro facility and about 22 acres in July for approximately $25.5m.
- On October 30, the company issued 5.54m Class A shares in exchange for the same number of Class B shares and PKLP units. As of November 14, it reported 67.1m Class A and 168.3m Class B shares outstanding.
Outlook, trials and risks
- Management expects R&D and G&A spending to increase as clinical development, manufacturing capability and public-company operations expand. The filing gives no revenue or earnings guidance.
- REACT’s Phase 2 RMCL-002 follow-up was expected to finish in Q4 2023; full data were expected in the first half of 2024. The company reported November interim results as encouraging, particularly for higher-risk Stage 4 patients, but cautioned that interim results may not predict final outcomes.
- REGEN-007 enrollment was complete at 53 subjects; interim data were anticipated in mid-2024. Planned Phase 3 proact 2 enrollment is 600, with enrollment expected to begin in the first half of 2024.
- REGEN-006/proact 1 is being amended to focus on patients with more advanced CKD and moderate-to-severe albuminuria. The company cited interim RMCL-002 data and payer/health technology assessment feedback; it anticipated submitting amendments in early 2024 and restarting enrollment in the first half of 2024.
- Manufacturing was paused after a contracted EU Qualified Person audit identified quality-management documentation deficiencies to address before product release and distribution at EU clinical sites. The company said the pause was not prompted by safety events and is intended to support Phase 3 and future commercial manufacturing.
- Greensboro project incentives could total up to approximately $33.7m in tax credits and $1.9m in energy credits, subject to milestones, including hiring and investment targets. These are conditional, not assured proceeds.
- On November 10, the board terminated CEO Tim Bertram without cause, effective November 15; Bruce Culleton was appointed CEO and director effective that date. Bertram was expected to serve as a consultant.
- Key risks include clinical and regulatory uncertainty, trial enrollment and execution, manufacturing readiness, substantial future funding needs and potential shareholder dilution, along with inflation, supply-chain disruption and market conditions. ProKidney reported no material legal proceedings; management said disclosure controls were effective and a previously reported material weakness had been remediated.
Important facts for investors to verify
- Progress and final results for RMCL-002, REGEN-007, and the planned Phase 3 trials, including whether trial timelines and enrollment targets are met.
- Resolution of the manufacturing quality-system deficiencies, and the effect of the pause on Phase 3 supply and timelines.
- Cash burn, investment spending and whether the stated runway through 2024 remains achievable under updated plans.
- Conditions and milestones attached to Greensboro incentives, and the facility’s expected capital requirements.
- Effects of the CEO transition, the October share exchange, the large Class B share balance, and potential equity-award and earnout dilution.